Technical and Further Education Institutes: Results of the 2013
Audits

Tabled: 6 AUGUST 2014

This report covers the results of the
2013 financial audits of 27 entities, comprising 14 technical and
further education (TAFE) institutes and the 13 entities they
control.

Clear audit opinions were issued on the
financial reports of all entities. An emphasis of matter paragraph
was included in the financial report of Northern Melbourne
Institute of TAFE, drawing attention to a material uncertainty in
its ability to continue as a going concern.

Clear audit opinions were issued on all
19 performance reports for 2013. However, the TAFE sector did not
have a framework that mandated relevant and appropriate key
performance indicators, nor was it provided with sufficient
guidance in establishing suitable targets and analysing
performance. Accordingly, the sector's performance reporting was
underdeveloped and inconsistent, lacked clear direction and did not
facilitate comparability across the sector. From 2014, TAFEs are to
implement a strategic planning framework requiring them to set key
performance indicators clearly linked to their key strategies.
While an improvement, the framework does not establish a core suite
of indicators against which TAFEs are to report. Without the
ability to compare performance across the sector and between
entities, the value of performance reporting is diminished.

The 14 TAFEs generated a net deficit of
$16.2 million, a decrease of $74.8 million from 2012. These results
suggest that many TAFEs have yet to respond effectively to changes
to the funding model and contestability arrangements. The changes
were designed to improve the sector's financial sustainability and
have increased TAFEs' reliance on student fee revenue in a
contestable environment. While a majority of TAFEs reduced their
expenditure during the year, the cost reductions and increases in
student fee revenue were not sufficient to offset the reduction in
funds from government of $116.3 million.

Consequently there has been a
significant decline in the financial sustainability of the sector.
We assessed the financial sustainability of five of the TAFEs as
being high risk in 2013. This means that there are immediate or
short term financial challenges at these TAFEs that need to be
addressed.

Northern Melbourne Institute of
Technology (NMIT) reported a net operating deficit of $31.7
million, and in the absence of any remedial action projected
substantial cash-flow deficits for the next two years. As a result,
the Department of Education and Early Childhood Development has
agreed to support NMIT in securing a two-year interest-free
government bridging loan of $16 million to assist with proposed
restructuring arrangements. Following changes to the board and
executive team, NMIT has identified and commenced the
implementation of various operational initiatives to improve its
cash flows for 2014. NMIT has been flagged as an overall high
financial sustainability risk in this report.

Against the trend, Chisholm, Goulburn Ovens, Kangan and
Sunraysia TAFEs reported improved financial results. Some of the
effective initiatives at these TAFES have included implementing
service provision through third parties (Goulburn Ovens and
Sunraysia), changed course offerings, staff redundancies and
reduced operating costs. Early adoption of these initiatives has
made these TAFEs more financially viable, and they are to be
commended.

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